Moribund Refineries Haunt Africa as Fuel Prices Increase

Moribund Refineries Haunt Africa as Fuel Prices Increase (News Central TV)

A shortage of oil refineries across sub-Saharan Africa coupled with skyrocketing crude prices due to Russia’s aggression against neighbouring Ukraine has left countries dangerously short of fuel supplies, disrupting airlines, and causing unusually long queues at filling stations.

The surge in prices comes at par with a hike in food prices after Russia invaded Ukraine, hitting tens of millions of people already living in precarious conditions, due to the COVID-19 induced lockdown as well as government and aid agency budgets.

A specialist consulting company for the African downstream energy market, CITAC says refineries across the African continent combined can process about 1.36 million barrels of oil a day, in theory, but with many in moribund state, only 30% of that capacity was achieved last year.

Jet fuel prices were recently hiked by 5% in the month of May. A sharp rise of 18.3% came in March followed by a 2% hike in April.

A report by Statista said that the continent’s proven crude oil reserves stood at 125.3 billion barrels in 2021 alone.

Refineries in Cameroon, Ghana and Senegal are closed, as are four in Africa’s most industrialised economy, South Africa. Africa’s biggest oil producer, Nigeria, pumps over 1.3 million barrels a day, but the two privately owned refineries still functional can only process 1% of the total output.

In May, the African Export-Import Bank (Afreximbank) and the African Petroleum Producers’ Organization (APPO) signed a deal in Angola’s Capital, Luanda at the 8th African Petroleum Congress and Exhibition tagged “CAPE VIII” to create a multi-billion-dollar “energy bank” to boost private investment in the sector but energy analysts say there a few quick fixes on the horizon.

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The Western countries are not left out in the fuel shortages dilemma, but the impact in Africa is expected to last longer as governments and companies are generally less able to afford the increasing cost of imported fuel, or come up with the millions of dollars needed to get refineries fully functional.

Major Western oil companies have been pulling out from refinery projects in across the African continent in recent years and local investors and governments have largely failed to plug the gap, leading to a prolonged lack of investment in improving facilities.

The upshot is that despite the continent’s estimated 125 billion barrels of oil reserves and about 600 trillion cubic feet of natural gas, African countries largely rely on imported petroleum products to power their economies.

Some government officials also added that even major crude oil exporters, Nigeria and Angola, depend on imports for almost 80% of their domestic fuel needs.

In the near-to-nonexistence of refining capacity, Western oil majors and commodities trading firms have over the years sent oil products from the Middle East and Far East to float in large tankers off the shores of Togo in West Africa, where they can then be riven up into lesser volumes for last-minute deliveries.

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But with immediate delivery prices so high and the unusually volatile market, major players have pulled back. Higher trade costs and extra outlays due to credit concerns with small, independent African importers are exacerbating the problem.

In recent proposals to buy diesel or jet fuel, oil traders said that only two or three companies responded, compared with six or more before Russia’s President Vladimir Putin ordered the full invasion of Ukraine, which the Kremlin calls a “special military operation.”

Following the invasion, there has been a barrage of western sanctions on Russia with the European Union seeking to cut dependence on Russia’s oil and gas by coming to Africa and the Middle East for oil and gas contracts.

The highest gold producer in Africa, Ghana has so far been spared shortages, but importers say daily price increment mean each purchase is more expensive than the last. 

Ghana’s statistics service say retail diesel prices shot up more than 90% year-on-year in April.

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With prices for immediate delivery so high compared with future months – a market phenomenon known as backwardation means that there is little incentive to store products for future sale.

Physical jet fuel prices hit record highs in April in Europe and the United States could face a summer of gasoline, fuel, and jet fuel shortages, while stock levels fell to their lowest in two years at Europe’s key Amsterdam-Rotterdam-Antwerp oil hub in the week to May 12.

Russian diesel, fuel oil and other products were previously stored and re-blended in Amsterdam-Rotterdam-Antwerp for transport to Africa, but Russian crude and products can now only be sold to European buyers in certain cases.

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